"Despite extensive negotiations in good faith, CP Lotus and Wumart were not able to make sufficient progress in reaching agreement on certain key terms for the proposed transactions", said Thai retailer CP Lotus, a unit of Thai conglomerate CP Group, on Dec. 16 in a statement noting that the previous acquisition deal will be dropped. Hence, the share prices of CP Lotus and Wumart dropped sharply.

So far, this year’s big retail merger and acquisition integration has finally ended in a "break-up", chilling the retail business in transformation.

Wumart and CP Lotus announced on October 15 that the Chinese retailer will purchase the Thai chain's 36 stores with total floor areas of 0.31 million square meters in East and North China with HK$2.345 billion ($302 million). Wumart said in mid-October it had bought 9.99 percent of CP Lotus' shares, and CP Lotus bought 13.77 percent of Wumart's shares.

Both parties were full of confidence in the merger case, which has gained industry focus. Wumart considered that the M&A could help it improve competency and better grasp China’s retail market. CP Lotus said the company would benefit from the improved operating capacity and efficiency of Wumart, and the management of CP Lotus would concentrate on the business in Guangdong and Hunan provinces, where it had the highest growth rate. It would be good for shareholders of both parties.

Lots of insiders were optimistic about the event and reckoned that Wumart and C.P. Lotus both have their own operational advantages. The merger & acquisition by mutual holding could lower the risks of both parties effectively at the same time of cutting down operational cost, and would play an active role of "huddle for warmth" against the cold winter of retail business.

Unexpectedly, the "marriage", which was full blessed by all parties, broke down in a time less than hundred days. Both parties didn’t detail the reasons in the "Break-up Contract" dated December 16th. C.P. Lotus offer a reason that "both parties cannot make progress on several main clauses of determining the proposed transactions", while Wumart said that "we hope to emphasize that we have considered the optimal benefits of shareholders of both parties in above-mentioned matters".

When the market is guessing, Li Wenhai, the newly-appointed CEO of C.P. Lotus, said that the previous shutdown event, labor issues and close-store policy in Beijing were the blasting fuses for the failure of transaction. References indicate that because of the poor performance in China market, Jimmy, an American and then CEO of C.P. Lotus, decided to turn loss into gain by job cut and store closing. According to the plan, C.P Lotus needed to lay off employees by 30 percent, which refer to 600 staff, and close 8 stores that were suffering heavy losses.

Panic swept C.P. Lotus due to the plan. It suffered even heavier losses, and labor disputes became the "theme" of the past year. As the staff were dissatisfied with salary and the job cut policy, 8 stores in Beijing shut down for three times in October, bringing losses of over RMB10 million Yuan. "Like Tesco, foreign retail enterprises like C.P. Lotus have limited understanding of China, lots of operational measures are not suitable for China’s national conditions", said Shen Zhengyuan, Senior Researcher of CI Consulting.

Will the company be sold in future? Li Wenhai didn’t make it clear. He said that after two months’ adjustment, C.P. Lotus has restored the morale and is planning a new round of expansion.

China’s retail business, which has been "depressing" continuously, is difficult to pick up in a short time by self-dependent transformation. Association between strong enterprises has become an important route for many enterprises to obtain rapid breakthrough, however, ineffective integration has become a new difficulty on the way. Experts said that the operation method and ideas of different enterprises differ greatly, salary system, personnel structure and operation mode need to be adjusted, and cultural barrier need to be overcome. Integration is more difficult than imagination, it will take a long time for enterprises to obtain successful cooperation and yield anticipated benefits.

Liu Hui, Chief Advisor of Uni-retail Business and Management Co., Ltd. Beijing China, said that compared with developed countries, retail business in China has a low degree of concentration. The failure of transaction between Wumart and C.P. Lotus will not be the end of industrial integration. Along with the rental cost goes up and the hypermarkets are forced by rental cost, plus such factors as intensified competition environ, retail industry will continue, reinforce and speed up the integration.